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Basel III Pillar Lll Disclosure September 30, 2020

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Basel III Pillar Lll Disclosure September 30, 2020 The Northern Trust Company, Canada Basel III Pillar lll Disclosure September 30, 2020 October 28, 2020 NTAC:3NS-20 CONTENTS THE NORTHERN TRUST COMPANY, CANADA OVERVIEW AND SCOPE OF APPPLICATION ..………. 3 LOCATION AND FREQUENCY OF DISCLOSURE ………………………………………………………………………….. 4 CAPITAL STRUCTURE ……………………………………………………………………………………………………………….. 5 CAPITAL ADEQUACY ………………………………………………………………………………………………………………… 5 CREDIT RISK …………………………………………………………………………………………………………………………….. 8 EXPOSURES RELATED TO COUNTERPARTY CREDIT RISK ………………………………………………………….. 9 MARKET RISK AND LIQUIDITY RISK ………………………………………………………………………………………….. 10 OPERATIONAL RISK …………………………………………………………………………………………………………………. 11 INTEREST RATE RISK IN THE BANKING BOOK ..…………………………………………………………………………. 11 __________________________________________________________________________________________________ Basel III Pillar III Disclosure – The Northern Trust Company, Canada Page 2 of 11 NTAC:3NS-20 THE NORTHERN TRUST COMPANY, CANADA OVERVIEW & SCOPE OF APPLICATION This document presents the capital structure and capital adequacy calculations of The Northern Trust Company, Canada (TNTCC) based on guidelines published by the Basel Committee on Banking Supervision (Basel) and the Office of the Superintendent of Financial Institutions (OSFI). TNTCC complies with the Basel III framework as it applies: . Pillar 1: Minimum Capital and Liquidity Requirements – TNTCC has adopted the Standardized Approach to Credit Risk and the Basic Indicator Approach to Operational Risk to determine the company’s capital requirements under Basel Capital Adequacy Reporting (BCAR); . Pillar 2: Prudential and Risk Management Expectations and the Supervisory Oversight Process – TNTCC completes an Internal Capital Adequacy Assessment Process (ICAAP) annually, with the results reviewed and approved by TNTCC’s Board of Directors; and . Pillar 3: Public Disclosure – this Pillar 3 disclosure document provides information on TNTCC’s risk management objectives and policies, its capital position, its approach to assessing the adequacy of its capital and exposure to material risks. TNTCC was, by Letters Patent of Continuance, continued as a trust company under the Trust and Loan Companies Act (Canada) in July 1993 and OSFI issued an order approving TNTCC to commence and carry out trust business in January 1994. TNTCC is a wholly owned subsidiary of The Northern Trust Company (TNTC), a corporation organised under the banking laws of the State of Illinois, United States of America. Northern Trust Corporation (NTC), a financial holding company based in Chicago, Illinois is the ultimate parent of TNTC. TNTCC is not considered a Domestic-systemically important bank by OSFI. NTC’s business activities in Canada are comprised of global custody and associated services, securities lending, asset management and fund administration services. These services are delivered through three regulated Canadian entities: TNTCC, the Canada Branch of TNTC (Canada Branch), an authorized foreign bank branch under the Bank Act (Canada), and NT Global Advisors, Inc. (NTGA Canada). To ensure that TNTCC maintains sufficient regulatory capital and liquidity at all times, TNTCC has adopted a Capital and Liquidity Management Policy (CLM Policy) and manages its assets and liabilities in accordance with its Asset and Liability Management Policy (ALM Policy). These two policies provide the basis for TNTCC’s capital and liquidity risk management and guideline to govern the investment in securities and money market assets. TNTCC currently does not hold any client deposits or engage in any activities that result in off- balance sheet exposures. Accordingly, its capital and liquidity requirements are stable and predictable. __________________________________________________________________________________________________ Basel III Pillar III Disclosure – The Northern Trust Company, Canada Page 3 of 11 NTAC:3NS-20 Northern Trust Risk Management TNTC has established an integrated Enterprise Risk Management Framework (ERM) that provides for consistent risk management practices throughout the organization, including TNTCC, and acts as a reference of how various components are defined, aligned and linked to capital and liquidity adequacy. It allows for active management of risk in conjunction with defined risk appetites. TNTCC’s risk appetite is low to moderate and its attitude toward risk is best described as judicious, with an objective of long-term stability. TNTCC’s very strong capital base and liquid balance sheet enable it to pursue strategic growth opportunities and manage unexpected events. Risk is effectively managed by a comprehensive risk management program which involves related Northern Trust entities, as required. This report is unaudited and the amounts are presented in Thousands of Canadian Dollars, unless otherwise disclosed. Financial results are prepared in accordance with International Financial Reporting Standards (IFRS). LOCATION AND FREQUENCY OF DISCLOSURE This quarterly disclosure is posted and publicly available on Northern Trust’s website (www.northerntrust.com). __________________________________________________________________________________________________ Basel III Pillar III Disclosure – The Northern Trust Company, Canada Page 4 of 11 NTAC:3NS-20 CAPITAL STRUCTURE The capital structure of TNTCC consists of Common Shares and Retained Earnings. TNTCC has authorized an unlimited number of common shares without par value. As at September 30, 2020, TNTCC had 30,000 common shares issued fully paid and outstanding. Table 1 - Capital Structure The table below provides a breakdown of TNTCC’s capital structure: Table 1 - Capital Structure Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Tier 1 Capital Share Capital 30,000 30,000 30,000 30,000 30,000 Retained Earnings 34,851 36,044 37,390 38,311 39,037 Total Tier 1 Capital1 64,851 66,044 67,390 68,311 69,037 Total Capital 64,851 66,044 67,390 68,311 69,037 1. All capital held by TNTCC is Tier 1 Capital CAPITAL ADEQUACY TNTCC has a thorough process to assess capital adequacy built around an internal view of its risk profile and a comprehensive capital planning process. Projections of regulatory and internal capital requirements and available capital are compared to assess TNTCC’s capital adequacy over a multi-year time period. Having a clear understanding of regulatory and internal capital requirements, as well as available capital levels, under different circumstances is an important component of an entity’s capital adequacy assessment. TNTCC’s capital adequacy is assessed quarterly and is based on the CLM Policy and the Capital Management Guideline (CMG), both of which were approved by the Board of Directors. __________________________________________________________________________________________________ Basel III Pillar III Disclosure – The Northern Trust Company, Canada Page 5 of 11 NTAC:3NS-20 Table 2 - Modified Capital Disclosure Template 1 The table below represents the modified capital disclosure template for Non-domestic-systemically important banks (Non-D-SIBs): Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Common Equity Tier 1 capital: instruments and reserves 1 Directly issued qualifying common share capital (and equivalent for non-joint stock companies) plus related stock surplus 30,000 30,000 30,000 30,000 30,000 2 Retained earnings 34,851 36,044 37,390 38,311 39,037 6 Common Equity Tier 1 capital before regulatory adjustments 64,851 66,044 67,390 68,311 69,037 28 Total regulatory adjustments to Common Equity Tier 1 - - - - - 29 Common Equity Tier 1 capital (CET1) 64,851 66,044 67,390 68,311 69,037 36 Additional Tier 1 capital before regulatory adjustments - - - - - 44 Additional Tier 1 capital (AT1) - - - - - 45 Tier 1 capital (T1 = CET1 + AT1) 64,851 66,044 67,390 68,311 69,037 58 Tier 2 capital (T2) - - - - - 59 Total capital (TC = T1 + T2) 64,851 66,044 67,390 68,311 69,037 60 Total risk-weighted assets² 38,138 36,460 39,111 39,705 38,920 Capital ratios 61 Common Equity Tier 1 (as a percentage of risk weighted assets) 170.05% 181.14% 172.30% 172.05% 177.38% 62 Tier 1 (as a percentage of risk weighted assets) 170.05% 181.14% 172.30% 172.05% 177.38% 63 Total capital (as a percentage of risk weighted assets) 170.05% 181.14% 172.30% 172.05% 177.38% OSFI target 69 Common Equity Tier 1 capital target ratio 7.0% 7.0% 7.0% 7.0% 7.0% 70 Tier 1 capital target ratio 8.5% 8.5% 8.5% 8.5% 8.5% 71 Total capital target ratio 10.5% 10.5% 10.5% 10.5% 10.5% 1. Numbering in the above table corresponds to the OSFI prescribed template for non-D-SIBs included in the May 2018 Capital Disclosure Requirements Guideline 2. See Table 3 – Risk-weighted Assets __________________________________________________________________________________________________ Basel III Pillar III Disclosure – The Northern Trust Company, Canada Page 6 of 11 NTAC:3NS-20 Table 3 – Risk-weighted Assets The Pillar III capital requirements of TNTCC for credit and operational risk are provided in the following table: Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Capital Requirements for Credit Risk Deposits with Regulated Financial Institutions 8,808 6,028 2,916 7,577 927 Risk Weighted - Deposits with Regulated Financial Institutions (20%) 1,762 1,206 583 1,515 185 Government Securities 50,256 56,783 59,055 56,131 62,671 Risk Weighted - Government Securities (0%) - - - - - Other Assets 7,949 6,705 9,335 8,777 8,997 Risk Weighted - Other Assets (100% - 250%) 8,038 6,741 9,390 8,827 9,047 Total Risk Weighted Assets for Credit Risk 9,800 7,947 9,973 10,342 9,232
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